Two Well-Known Stock Market Indicators You Shouldn’t Trust Anymore
By Moe Zulfiqar for Daily Gains Letter |
Investing isn’t easy, and trying to predict the next market move can be stressful. In recent days, the Dow Jones Industrial Average has broken its all-time high and is moving higher. Similarly, the S&P 500 is inching closer to the highs it made before the U.S. economy was hit by the Great Recession.
Now, the questions among investors remain: Where is the stock market headed next? Is the rally unsustainable? Will investors be able to profit in 2013? Or is there a sell-off coming?
To predict the direction of the key stock indices, many analysts and investors alike conduct rigorous amounts of research. They might look at different measures and leading indicators, such as economic activity, unemployment, government spending, and other such things.
In contrast, some might look into the uncanny indicators to predict the direction of the key stock indices. Consider two stock market indicators: the Super Bowl Indicator and the Boston Snow Indicator.
Super Bowl Indicator
The Super Bowl Indicator suggests that when a National Football League (NFL) team from the National Football Conference (NFC) wins the Super Bowl, the key stock indices rise for the year. On the contrary, if an NFL team from the American Football Conference (AFC) wins the Super Bowl, then the stock market declines.
Although this may sound a little surprising, the Super Bowl Indicator was correct 28 times between the years 1967 and 1997—that’s an accuracy rate of more than 90% in a 31-year period. (Source: Jaffe, C., “Super Bowl Indicator: Sillier than half-time show,” MarketWatch, February 1, 2013.)
As it stands, the indicator now has 75% accuracy. This year at Super Bowl 2012, the Baltimore Ravens won, and they are from the AFC, meaning the stock market will decline, according to the Super Bowl Indicator.
Boston Snow Indicator
The Boston Snow Indicator suggests that the key stock indices will rise if Boston experiences a snowfall on Christmas day. The reason backing this argument dates back to when Boston received snowfall of more than eleven inches. The following year, key stock indices like the Dow Jones Industrial Average increased by more than 26%, and the S&P 500 rose by more than 20%. (Source: CNBC, February 18, 2009.)
According to The Old Farmer’s Almanac 2013, on December 25, 2012, it did not snow in Boston, meaning the stock markets will not rise in 2013, according to the Boston Snow Indicator. (Source: The Old Farmer’s Almanac web site, last accessed March 21, 2013.)
As you have probably figured out by now, these two indicators are simply wrong—the key stock indices are rising. With that said, there are other offbeat stock market indicators, like the two mention above, that try to predict the direction of key stock indices, including: the Lipstick Indicator, the Harvard MBA Indicator, and the Aspirin Indicator.
While these indicators might suggest where the markets may be headed, investors must always keep in mind that correlation is not the same as causation. You shouldn’t just trust these indicators for your investment decisions. They can be wrong!
When it comes to investing, focus on risk management and make decisions based on actual economic conditions; don’t predict the direction of the key stock indices by simply looking at coincidences that may not matter.
Tags: Dow Jones Industrial Average, key stock indices, risk management, S&P 500, stock market, U.S. economy
Jorge H Rodriguez